Export Performance of Processed Food in India

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ISSN 2248-9878 Volume 3, Number 3 (2013), pp. 261-270 © Research India Publications

http://www.ripublication.com/gjmbs.htm

Export Performance of Processed Food in India

Kakali Majumdar

College of Management, Shri Mata Vaishno Devi University, Kakryal, Katra, J&K-182320, India.

Abstract

Indian food processing industry is primarily export oriented. With the export growth rate of around 15%, its share in the international market is only 1.7%. Again, only 2% of the total food produced in India is processed for further consumption. This is a matter of concern that despite massive potential, this sector remains grossly underutilized. Against this background, the present paper aims to study the export prospect of Indian Food processing industry laying focus on its trends, the problems it faces and possible remedial measures to achieve its high potential. Growth rates have been calculated following the best fitted trend. Revealed Symmetric Comparative Advantage Index has been used to measure the Comparative advantage of Indian processed food export.

Keyword: Food processing Industries, Best Fitted Trend, Revealed

Symmetric Comparative Advantage Index.

1. Introduction

Liberalization of trade resulted in a rapid transformation of the export and import situations in the developing countries (Aksoy and Beghin, 2005). Specially, W.T.O brought the opportunities for countries to grow and realize their export potential. India’s approval of the Agreement on Agriculture resulted in change in levels of comparative advantage for various agricultural commodities exported in the global markets (Shinoj and Mathur, 2008). Structural changes in the composition of agricultural trade were also observed in the world market (Jongwanich, 2009). Traditional food export has been gradually replaced by processed food export.

India is the second largest producer of food, just behind China. Earlier, the activities of food processing sector in India were mainly limited to the food

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preservation, packaging and transportation. However, over the years, with the emergence of new markets and technologies, the sector has extended its scope. It has started producing many new items like ready to eat food, beverages, processed and frozen fruit and vegetable products, marine and meat products, etc. It also includes establishment of post-harvest infrastructure for processing of various food items like cold storage facilities, food parks, packaging centers, value added centers, irrigation facilities and modernized abattoir. Presently Indian Food Processing Industry mainly consists of Dairy, Fruits and Vegetables, Grains and Cereals, Fisheries, Meat and Poultry, consumers food items etc. Among these, Dairy products have the largest market share of about 37%. With the rapid growth of the economy, shift in the consumption pattern from cereals to more varied products like milk, vegetables etc. have resulted in the development of food processing industry in India. According to the eleventh five year plan, food processing industry constitutes more than half of the total food products in India. Food processing industry in India is primarily export oriented. No industrial license is required for setting up of fruit & vegetable processing industry. Though the industry is large in terms of size in India, it is still at a budding stage in terms of development and accounts for only 1.7 per cent of world trade in this particular sector. Against this back ground, the present work aims to study the nature and prospects of export of Food Processing Industry in India.

2. Literature Review

Athukorala, et al. (2002) observed that as the developed countries have better processing technologies, packaging facilities etc, they are better positioned for export prospects of food processing sector over the developing countries. Athukorala and Jayasuriya (2003) highlighted, due to some infrastructural inadequacy the impact of food safety standards on processed food exports in developing countries are still inconclusive. Mehta and George (2003) said the processed food exports can be a viable instrument to sustain and enhance social welfare in developing countries and this will be possible if all trading partners work towards making the trinity of science, safety and trade of food products blend to form a harmonious unity. Wilkinson (2004) studied transformations in the food processing sectors of developing countries are increasingly seen as strategic from the point of view of export earnings, domestic industry restructuring and dietary issues. Studies by Chenggapa et al (2005) and Mukherjee & Patel (2005) pointed out though Indian consumers have preferred fresh and unprocessed food over processed and packaged food, the recent changes in consumption patterns, particularly in middle and high income groups show ample opportunity for processed food segments in the country. Goyal and Singh (2007) found, rising income, increased urbanization, changing lifestyle, greater willingness to experiment with new products, increase in the number of working women etc. have led to a strong growth in consumption of processed food products. Study by Dharni and Sharma (2008) indicated that Food processing sector is an important link between agriculture and industry. In this study, the non-parametric DEA approach is used to

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compute the Malmquist Total Factor Productivity (TFP) change. An inter-country econometric study of processed food exports by Jongwanich (2009) highlighted that food safety standards imposed by developed countries have a negative implication for processed food exports from developing countries.

3. Research Methodology

3.1Objective: The specific objectives of the paper are as follows:

1. To study the export Growth trend of food Processing Sector in India. 2. To study the competitive advantage of export of food producing sector.

3.2 Hypothesis

H1: There will be a significant positive influence of time on export growth of the

processed food.

3.3 Data sources

The study is based on secondary data. A large variety of products are listed under this sector. The present study mainly concentrates on processed fruits & vegetables and some processed food products namely Dried and preserved vegetables, Mango Pulp, Others Processed fruits and vegetables, Pulses, Ground Nuts, Guar Gum, Jaggery and Confectionery, Coca products, Cereal Preparation, Alcoholic Beverages and Miscellaneous Preparation . Time-series data on the export of processed foods, both in physical quantity and value, for the year 2001-02 to 2009-10, were collected from ministry of Food Processing Industries, APEDA, RBI bulletin, Economic Survey. Because of the non-availability of the item wise data related to processed food, the present study remains restricted within the said period. However, the growth rate for total export, export of agricultural product and export of total processed food has been calculated for the period of 1993-94 to 2009-10.

3.4 Growth Measurement

Growth rates of selected Processed Foods, both in the absolute quantity (in MT) and value (Rs Crores) have been calculated with the best fitted model for the year 2001-02 to 2009-10. Linear, Exponential, Parabola and Log quadratic models have been considered for the selection. R2 of different functional forms are not comparable. But, if the difference in R2 is substantial the form with highest R2 can be considered as the best fit. In case of narrow gap, the form with the lower C values (Chattopadhyay and Bhattacharya, 1986), can be considered (Majumdar, Basu, 2006). C is defined as

) 1 ( ) ( − − = P Q n

C , where P is the number of pairs of adjacent residuals of the same

sign and Q is the number of pairs of the opposite sign. If the residual is greater than equal to zero at one of them or if it is less than equal to zero at the other then 1 is assigned to Q. Models with insignificant coefficient of the quadratic term have been rejected.

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3.5 Measurement of comparative advantage

For examining the comparative advantage of Indian processed food export, Revealed Symmetric Comparative Advantage (RSCA) index (Dalum et al., 1998) is calculated using the formula: RSCA = (RCA-1) / (RCA+1).RSCA measures the comparative advantage or disadvantage of a country with respect to another country or group of countries. RCA is the Revealed Comparative Advantage (Balassa, 1965) that can be calculated by the following relation: RCAij = (Xij/Xwj)/(Xi/Xw) ,Where Xij = ith country’s export of commodity j, Xwj = world exports of commodity j, Xi = total exports of country I, Xw = total world exports’. In the present study, country ‘i’ refers to India, commodity ‘j’ refers to any of the selected processed food item. RCA indices greater than unity reveals comparative advantage of that particular product in world trade. Basically RSCA is an improvement over RCA as RCA suffers from the problem of asymmetry (Dalum et al., 1998). RSCA ranges from -1 to +1. Its positive value indicates comparative advantage of the country in export of the commodity and vice versa.

4. Result and Discussion

4.1Export performance

India’s exports of processed foods have been increased over the years. It increased from Rs.2563.91 Crores during 2001-02 to Rs. 8307.29 Crores in 2009-10 which includes Dried and Preserved Vegetable of Rs. 532.07 Crores, Mango Pulp of Rs. 744.61Crores of, Other Processed Fruit and Vegetable of Rs. 1434.51 Crores, Pulses of Rs. 408.32 Crores, Groundnuts of Rs. 1425.39Crores, Guargum of Rs. 1133.31 Crores, Jaggery & Confectionary of Rs. 233.2 Crores, Cocoa Products of Rs. 96.99 Crores, Cereal Preparations of Rs. 1013.54 Crores, Alcoholic and Non Alcoholic Beverages of Rs. 589.93 Crores and Miscellaneous Preparations of Rs. 694.28 Crores. The value of export of dried fruits and vegetables decreased from Rs 537.15 Crores to 532.07 Crores during 2001-02 to 2009-10. The export of Jaggery and Confectionery also decreased from Rs 436 Crores to Rs 233.2 Crores during the same period. The exports of selected processed food product for the year 2009-10 in quantitative and value terms have been presented in Table 2. Export of other processed fruits and vegetables which include Apple Juice , Beans Shelled, Chips Fried ,Dried Apricots, Grapefruit Juice, Jam Jellies of Other Fruits, Lemon Juice, Pineapple Juice, Tomato Juice etc. registered maximum increase from Rs 201.74 Crores( 61332.36MT) to 1435.51 Crores (397978.2MT) during the said period. During 2009-10 other processed foods emerged as the largest contributor to total processed food export with 21.80 per cent share in physical units and 17.28% in value term. This is followed by ground nut (18.64 and 17.16% respectively) (APEDA). Coca products registered lowest percentage share, only .32% in physical unit and 1.16% in value term.

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4.2Growth Rates

The exponential growth rates (Gt = b×100 ) for export of Indian processed food have

been presented in Table 1 and Table 2. The exponential growth rate of processed food products was 15% during the period of 1993-94 to 2009-10 where as that of total export and export of agricultural product was 16% and 12% per annum respectively. All the growth rates were observed significant that supports the hypothesis H1.

Table 1: Growth rate of total Export and Agricultural Product in India.

Absolute Export( Rs Crores) Growth Rates

Item 1993-94 2009-10 1993-94 to 2009-10

Total Export 69748.85 845125.2 16*%

Export of Agricultural Produc 12586.55 89522.59 12*% Export of Processed Food 7 25 8307.29 15*%

Sources: Calculated from APEDA, Agricultural Statistics at a glance. Note: * Indicate

significant at 1% level by one-tailed t test.

The Export growth rate of all the selected processed food items both in terms of quantity and value, from the best fitted functional form, for the year 2001-02 to 2009-2010 are represented in Table 2.

Table 2: Export growth rate of Processed Food in India ((2001-02 to2009-10)).

Quantity Value

Growth

rate (%) Selected Model

Growth

rate Selected Model Dried and preserved

vegetables -7.3 Linear

-.74

Parabola

Mango Pulp 11.30 Linear 12.64 Parabola

Others Processed fruits and

vegetables 25.88 Parabola

28

Exponential Pulses -3.7 Log quadratic 5.1 Log quadratic

OTHER PROCESSED FOODS

Ground Nuts 14.82 Linear 17.47 Parabola

Guar Gum Linear 15 Log quadratic

Jaggery and Confectionery 20.10 Linear 21.20 Linear Coca products 22.9 Exponential 27 Exponential Cereal Preparation 22.7 Exponential 22 Exponential Alcoholic Beverages 8.71 Linear 24.07 Parabola Miscellaneous Preparation 23.14 Parabola 22.19 Parabola

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So far as absolute quantity is concerned maximum growth rate is observed for Others Processed fruits and vegetables, 25.88% and minimum for Dried and preserved vegetables, -7.3%. In case of value, the figures are 28% and -.74% respectively, for the same products. Large discrepancy between the growth rates of quantity and value was observed for Dried and preserved vegetables, -7.3 and -.74% respectively and for Pulses, -3.5 and 5.1% respectively.

4.3 World vs Indian Export

Share of India in the world export of these commodities during the year 2009-10 has been presented in Table 3. The highest share was observed for Guar Gam, i.e. 45.75%. The share for Ground nut was 21.35% that of Dried Fruits and Vegetables was 6.02%, pulses 1.47%, Cereals Preparations .55%, Alcoholic Beverages .21%, jiggery and Confectionery .32% and almost insignificant percentage of coca product, .07.

Table 3: India and World Export of some important processed

food (2009-10); Value US $ Millions.

PRODUCT World Export Indian Export RCA Ratio RSCA

Dried and preserved

vegetables 1865 112.25 (6.02) 4.51 0.64 Pulses 5866 86.14(1.47) 1.10 0.05 Ground Nuts 1409 300.83(21.35) 16.03 0.88 Guar Gum 523 239.09(45.75) 34.24 0.94 Jaggery and Confectionery 15468 49.2(.32) 0.24 -0.62 Cereals Preparation 38841 213.80(.55) 0.41 -0.42 Coca Products 30948 20.42(.07) 0.05 -0.91 Alcoholic Beverages 60185 124.35(.21) 0.15 -0.73

Source: Calculated from APEDA, Note: Figure in the parentheses are the percentage share,

ERP-Export Performance Ratio.

In the present work Revealed Comparative Symmetric Advantage (RSCA) analysis has been done for the selected processed food items. Positive RSCA value indicates comparative advantage of the country in export of the commodity and vice versa.Table-3 shows that India has comparative advantage for Guar gum, Ground nut, Dried Fruits and Vegetables and Pulses. India enjoys maximum comparative advantage in Guar Gum. The RSCA for Gur Gum during 2009-10 was calculated at 0.98(RCA, 34.24). India is the single largest producer of Guar in the world, having 85% of global market share which is reflected by the RSCA measure. This is followed by Ground Nut with RSCA.88 (RCA 16.03), Dried Fruits and Vegetables .64 (RCA 4.51) and Pulses .05 (RCA 1.1). The exports of Jaggery and Confectionery, Cereals

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Preparation, Coca Products, Alcoholic Beverages from India did not enjoy any comparative advantage during 2009.

4.4 Export Destination

Trade barriers, comparative advantages, geographical proximity etc. are the determinants of export destinations of any product. As shown in Table 5, USA, UK, Saudi Arabia, Netherlands, Indonesia, Philippines, Malaysia, Thailand etc. are the main destination of export of Indian processed food. During 2009 the main importer of Indian Dried fruits and vegetables, Guargam and other processed foods was USA with the amounts imported being 449945, 71923 and 73116MT respectively (APEDA data). For Mango Pulp and Jaggery & Confectionary, Saudi Arab was the top most destination and the amount of exports were 63480 and 4317 MT respectively. Pakistan and Indonesia were the main destination for Pulses and Ground nuts during 2009 and the physical amounts were 25829and 817692MT respectively. As per the APEDA data, the most important processed food of India is Guar Gum. After USA, China and Germany are the second and third largest destinations of Guar Gum export from India.

4.5 Government Intervention

Since liberalization Food-processing sector has been identified as high priority sector and a number of schemes and incentives were announced by Indian Government. FDI up to 100% in beverages is permitted under the automatic route for processed food items excluding alcoholic beverages and a few other restricted items. Most of the processed food items were exempted from the licensing and excise duties. During 1999, food processing industries were recognized as a priority sector for accessing bank credits (Kumar & Rao, 2010). In 2001, the government of India launched the program of establishing agri export zone (AEZ). THE MAIN OBJECTIVE BEHIND IS TO identify the potential of the agri product in a contiguous region. APEDA was constituted as the nodal agency to promote the set up of AEZ.

5. Conclusion

The present study reveals that out of eight processed food items there are four items where India enjoys comparative advantage in the world market. Except few processed products, most of the cases the growth rates were quite high. However, the contribution of this sector to the world trade is almost insignificant. Despite being one of the world’s major food producers, with huge potential for exporters, Indi’s accounts in the world food trade is only 1.5%. The constraints like non-availability of adequate infrastructural facilities, age-old technology, lack of adequate quality control, inefficient supply chain, inadequate shortage facility, high inventory cost, high packaging cost are creating negative environment to the growth of this sector. It is estimated that around 20 to 25% food stock is lost due to lack of proper storage facilities. Another important factor is that due to its being a capital intensive Industry, it leads to less number of producers in this specialized sector. The local market of

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Processed food is still small because of that the exporters fail to achieve economies of scale which indirectly influencing the world trade share of processed food. Food processing sector is also badly affected by lack of funding. Long gestation period and low returns create risk to lending money for this sector. As a result, a significant portion of its capacity has remained unutilized. The stagnant price realisations in the international market have also dented the prospect of some Indian processed food in the overseas market. Some other countries have started flooding of processed food in the global market at cheaper prices.

Despite all these problems, this sector has a bright future. Several giant firms have entered in to this sector. It can be mentioned that effective supply chain needs to be develop for the sustained growth of this sector. Brand building through technology up gradation should also be taken into consideration to give a fillip to this sector. There should be quality management, firm adherence to export commitments and acquisition of appropriate negotiation skills.

References

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[7] Fu Wenge. Sizhong Sun., Zhangyue Zhou (2011). “Technical Efficiency of Food Processing in China: The Case of Flour and Rice Processing”, China Agricultural Economic Review, Vol. 3 Issue: 3.

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[10] P.Shinoj and V.C. Mathur. (2008). “Comparative Advantage of India in Agricultural Exports vis-á-vis Asia: A Post-reforms Analysis’, Agricultural Economics Research Review, Vol. 21 January-June 2008, 60-66.

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[12] Mehta. Rajesh. and J. George. (2003). Processed Food Products Exports from India: An Exploration with SPS Regime, Project Report, Australian National University, University of Melbourne, Research and Information.

[13] Mukherjee. A. and Patel. N. (2005). FDI in retail sector India, New Delhi: Academic FoundationS.Mahendra. Dev., Chandrasekhara. Rao. N. (2004). “Food processing in Andhra Pradesh: Opportunities and challenges”, Working Papers, Centre for Economic and Social Studies, Hyderabad.Wilkinson. John(2004). “The Food Processing Industry, Globalization and Developing Countries”, The Electronic Journal of Agricultural and Development Economics, Volume. 1, Issue 2, 184-201.

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